Tax Implications of Dividing Assets in Monmouth County

February 20, 2016
By
Edward R. Weinstein

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When a couple decides to end their marriage, one of their first questions
or arguments is who is going to get what asset. Couples will often fight
over who gets the house, the cars, who will pay what debt and can even
go as far as who gets the dog. However, while a couple may viciously fight
over who gets what, they often do not think of the tax implications that
go along with dividing their marital assets.

Even with a very thorough and complex divorce settlement, it is important
that a person considers the tax implications of dividing their assets
in Monmouth County. While most people will think of an accountant when
they think of taxes, however, it is critical to have a lawyer who is familiar
with the tax implications that accompany a divorce.

A lawyer can help address financial concerns, can negotiate financial issues,
can help assess asset values, and can help you consider the tax implications
of dividing assets. Contact an
experienced divorce lawyer today to discuss your divorce and to learn more about the tax implications
of dividing assets in Monmouth County.

Dividing Marital PropertyIn New Jersey, in any divorce action, the court
may make an award to the parties "to effectuate an equitable distribution
of the property, both real and personal, which was legally and beneficially
acquired by them or either of them during the marriage.

In New Jersey, when a couple marries, absent certain exceptions, everything
that a couple buys is considered to be owned by both spouses. Examples
of marital property can include:

Real Estate

Furniture in homes

Cars

Stocks

Bonds

Cash

Savings Accounts

Individual Retirement Accounts

Pension Plans

401Ks

Life Insurance Policies

In addition to the tax implications of dividing assets in Monmouth County,
when a couple incurs liabilities, these debts can be included as marital
property and may carry tax implications as well. The following are some
liabilities, which may carry tax implications:

Mortgages

Home improvement loans

Debts

Car loans

School loans

Unpaid bills

Transferring Property between Spouses

In New Jersey, it does not necessarily matter whose name is on a car title
or on a mortgage when it comes to dividing assets. In a divorce, a judge
may order, or perhaps it is stated in a divorce settlement agreement that
one spouse will transfer title to the other spouse.

Normally, this would mean that this transfer is subject to tax, however,
Section 1041 of the IRS Taxation code provides that in a divorce transferring
property between spouses incident to a divorce is not taxable.

Retirement Plans

An important tax implication of dividing assets in Monmouth County includes
retirement accounts such as 401(k) accounts or Individual Retirement Accounts
(IRA’s). When a couple is married the money that each spouse contributes
to their own retirement account will be subject to equitable distribution
in the event of a divorce.

However, in order to properly transfer retirements accounts, the parties
will need a qualified domestic relations order, which will be discussed
before, in order to transfer the accounts between spouses.

When a retirement plan is transferred from one spouse to the other, the
spouse who is receiving the payments will then be taxed on the account,
and in addition, early penalty fees may apply to one or both spouses.

Qualified Domestic Relations Orders (QDROs)

A QDRO is a special legal order that allows for one spouse 401(k) or pensions
to be transferred or distributed to a nonemployee spouse in the event
of a divorce.

A QDRO offers spouses an opportunity to carefully consider tax obligations
and offers spouses a full opportunity to consider all the implications
of dividing retirement packages.

When a QDRO is properly and carefully created, it can allow a spouse to
avoid penalties for withdrawing money from accounts prior to their retirement
age and can help clearly delineate tax obligations on both spouses.

Taxes are incredibly complicated and it is easy for a couple to overlook
very real tax implications of dividing assets in Monmouth County during
a divorce. However, there are lawful ways that allow for a couple to divide
their marital property without violating tax laws.

A Monmouth County divorce lawyer can help couples consider their assets,
draft divorce agreements and qualified domestic relations orders, and
can help clarify the complicated tax implications that often accompany
a divorce.

The information on this website is for general information purposes only.
Nothing on this site should be taken as legal advice for any individual
case or situation. This information is not intended to create, and receipt
or viewing does not constitute, an attorney-client relationship.